While Congress mulled over an inevitable, albeit still wildly unpopular, auto bailout yesterday, I practiced helping automakers by flushing some cash down a toilet.
Ford, GM and Chrysler as essentially asking American taxpayers to pay $25 billion for something bankruptcy courts do every day: give them time to reorganize and settle debts.
Ford and GM collectively ran through nearly $15 billion last quarter. So that $25 billion rescue package will last them until, say, May, at which point auto sales will still be in decline, the Big Three will be filing for bankruptcy and American taxpayers will have flushed $25 billion down the crapper for nothing.
I agree with the bailout proponents on one point: something needs to be done. Shutting down the Big Three would be crippling to Michigan’s economy, not to mention the millions of jobs at risk when automotive suppliers start to feel the crunch.
Maybe bankruptcy isn’t what it used to be, but filing Chapter 11 does not mean you have to close your doors and shut down production. Will jobs be lost? Sure, and in no small numbers. But it’s unlikely these cash flow problems will force Ford, GM, Chrysler and their suppliers to turn off the lights and close their doors forever.
A Chapter 11 filing typically allows businesses to maintain control of operations while being subject to court oversight. The debtor can also make their own proposals for reorganization.
As of this posting, the automakers have failed to outline any changes they would make to help pull their companies out of trouble. Just borrowing more money is not going to help, guys. Your cash flow crisis indicates you’ll need significant structural and administrative changes. Luckily, a bankruptcy court will be happy to take care of that for you. Chapter 11 would force the automakers to come up with their own proposals, or let creditors bring their ideas to the table in court.
Recently, some have called for the resignation or ousting of CEOs at the Big Three. I don’t think ousting the CEOs is the answer, but it’s also a bad idea to hand over cash to drowning businesses, not matter how many strings are attached.
If I had the ear of the auto CEOs for five minutes, I would offer this golden nugget of advice courtesy of Jim/Dad: shut down your excess car dealerships. Auto sales among the Big Three are comparable to those of foreign cars, but the foreign companies own roughly half as many dealerships. Those things are expensive to maintain. If I were an executive at Ford, GM or Chrysler the first thing I would look at as I prepare my Chapter 11 proposal would be how many of those dealerships we could shut down (hint: it’s probably half of them). I mean, I can buy a car on the Internet these days; we don’t need to have dealerships scattered about like McDonald’s drive-thrus. The Big Three’s problems are probably less related to fuel efficiency and safety ratings (all three manufacture models on par with foreign cars) and more a result of careless business practices.
Chapter 11 bankruptcy is not a death sentence. It’s a second chance. The Big Three haven’t engaged in any sketchy or illegal activity (a-la-Enron), so they have a good chance of surviving reorganization.
When it’s done right, Chapter 11 save jobs, maintains the engine of profitability (i.e. the business) and reconciles the company’s debt with creditors, the very reasons automakers argue we need the bailout. So let’s save ourselves $25 billion dollars and let the market work her magic.
Wednesday, November 19, 2008
Thursday, November 6, 2008
How Sarah Palin short-changed herself out of the White House
The set up looked great, but follow-through fell short.
If Senator John McCain is kicking himself this morning, it should not be for choosing Alaska Governor Sarah Palin as his running mate. I will say the same thing about Palin that I wrote about Mike Huckabee in January ("Iowa Caucus Ruckus"): my plumber has more foreign policy experience (a statement that is perhaps even more appropriate now than it was ten months ago given Joe the Plumber's recent rise to fame).
But I also stand behind my earlier statement that Palin was a smart VP pick. Politically, she was a great counter to McCain’s socially liberal policies and she energized the republican base. The ticket was well-balanced. The campaign fell apart in the strategy.
Rather than focusing on Palin’s real assets the campaign spent most of its time defending strengths she doesn’t actually posses, ridiculously clinging to their claim that Alaska’s proximity to Russia makes her a foreign policy buff.
Palin is no political lightweight. She has battled corruption in Alaska, been an advocate for families with special needs children, and her experience on the Alaska Oil and Gas Conservation Commission is particularly relevant as our nation vies for fuel independence. These are all strengths that would have helped create a well-rounded administration. Twenty years in the senate have given McCain enough experience in foreign and economic policy for the both of them. We should look for vice presidential candidates to posses skills or experience that the presidential candidate lacks.
I could blame the liberal media for unfairly attacking and haranguing Palin, but ultimately that just feels like a cop out. The campaign failed to refocus attention on Palin’s strengths, and that’s really too bad.
McCain will be 76 by the next election, and it’s unlikely he’ll run again. As for Palin, I wouldn’t support a bid for the presidency in 2012, but as Vice President she’d have done alright. If not, Mac could always send her on a peacekeeping mission to Africa.
If Senator John McCain is kicking himself this morning, it should not be for choosing Alaska Governor Sarah Palin as his running mate. I will say the same thing about Palin that I wrote about Mike Huckabee in January ("Iowa Caucus Ruckus"): my plumber has more foreign policy experience (a statement that is perhaps even more appropriate now than it was ten months ago given Joe the Plumber's recent rise to fame).
But I also stand behind my earlier statement that Palin was a smart VP pick. Politically, she was a great counter to McCain’s socially liberal policies and she energized the republican base. The ticket was well-balanced. The campaign fell apart in the strategy.
Rather than focusing on Palin’s real assets the campaign spent most of its time defending strengths she doesn’t actually posses, ridiculously clinging to their claim that Alaska’s proximity to Russia makes her a foreign policy buff.
Palin is no political lightweight. She has battled corruption in Alaska, been an advocate for families with special needs children, and her experience on the Alaska Oil and Gas Conservation Commission is particularly relevant as our nation vies for fuel independence. These are all strengths that would have helped create a well-rounded administration. Twenty years in the senate have given McCain enough experience in foreign and economic policy for the both of them. We should look for vice presidential candidates to posses skills or experience that the presidential candidate lacks.
I could blame the liberal media for unfairly attacking and haranguing Palin, but ultimately that just feels like a cop out. The campaign failed to refocus attention on Palin’s strengths, and that’s really too bad.
McCain will be 76 by the next election, and it’s unlikely he’ll run again. As for Palin, I wouldn’t support a bid for the presidency in 2012, but as Vice President she’d have done alright. If not, Mac could always send her on a peacekeeping mission to Africa.
Tuesday, November 4, 2008
McCain needs a major upset
My normally perky cup of coffee this morning turned into a big downer as I glanced over a red and blue map of the country. The numbers are not exactly in McCain’s favor.
McCain should easily secure 118 electoral votes from 14 states, according to Real Clear Politics’ count. Another 14 electoral votes are leaning his way. Assuming McCain wins those 132 votes and the 128 toss ups, that’s 260 electoral votes. Candidates need 270 to win. Ouch. Even in this best case scenario (Obama may steal some of those toss up votes), McCain’s campaign will fall short by ten votes. Obama, on the other hand, could win with the 278 votes that are either solid or leaning democrat. No toss ups needed.
If the polls are correct, McCain’s best hope is for an upset in Minnesota, which has ten electoral votes leaning toward Obama.
McCain should easily secure 118 electoral votes from 14 states, according to Real Clear Politics’ count. Another 14 electoral votes are leaning his way. Assuming McCain wins those 132 votes and the 128 toss ups, that’s 260 electoral votes. Candidates need 270 to win. Ouch. Even in this best case scenario (Obama may steal some of those toss up votes), McCain’s campaign will fall short by ten votes. Obama, on the other hand, could win with the 278 votes that are either solid or leaning democrat. No toss ups needed.
If the polls are correct, McCain’s best hope is for an upset in Minnesota, which has ten electoral votes leaning toward Obama.
Monday, November 3, 2008
Why John McCain was screwed before he even got out of bed this morning
The presidential race between O-Bom and Mac was all but decided before either announced his candidacy. And it has little to do with the economy or the war on terror.
It’s no secret that I’m a fan of Senator John McCain and would like to see the election swing his way, but if history is any indication (and she usually is) I won’t be breaking out the cigars and champagne on Wednesday. The incumbent party has little chance of retaining control over the White House. President George W. Bush’s term has seen some of the lowest approval ratings since the 1940s, and low approval ratings often forecast a shift in political power.
Harry Truman frittered away political capital like it grew on trees and in 1952, Dwight Eisenhower dominated the electorate over democratic candidate Adlai Stevenson. (Truman began his term following FDR’s death with approval ratings in the 80s; by 1951 his ratings were at 22 points, according to Wall Street Journal reports).
Jimmy Carter’s approval ratings were just starting to recover from the disastrous Iranian hostage crisis in 1979 when the economy took a downturn, sliding his approval ratings back into the 30s. Ronald Regan’s victory in 1980 was nothing short of a landslide.
Bush’s approval ratings are currently hovering in the 30s, just a few points lower than his father’s were when Bill Clinton unseated him during the 1992 election. At the time, unemployment and poverty had climbed to their highest in nearly ten years.
I’m not suggesting that approval ratings alone will make or break an election. Each of these examples had other contributing factors. Eisenhower’s victory came in the midst of the Cold War, and Bush’s 1990 tax hike left room for Clinton to secure a victory. Regardless of the issues, when the president’s approval ratings sink below 50 percent the party is in trouble. As a candidate, even if you do everything right (which no candidate has in this, or probably any, election) you’ll still face an uphill battle through a blizzard.
Of course Republicans should not be deterred from voting tomorrow, our votes still count. We also need to be realistic about our expectations for the election’s outcome: a McCain victory is unlikely.
So for now, tuck those Cubans back in their box and leave your Tattinger on ice. The political climate could look much more favorable for conservatives once Obama’s had four years in the White House.
It’s no secret that I’m a fan of Senator John McCain and would like to see the election swing his way, but if history is any indication (and she usually is) I won’t be breaking out the cigars and champagne on Wednesday. The incumbent party has little chance of retaining control over the White House. President George W. Bush’s term has seen some of the lowest approval ratings since the 1940s, and low approval ratings often forecast a shift in political power.
Harry Truman frittered away political capital like it grew on trees and in 1952, Dwight Eisenhower dominated the electorate over democratic candidate Adlai Stevenson. (Truman began his term following FDR’s death with approval ratings in the 80s; by 1951 his ratings were at 22 points, according to Wall Street Journal reports).
Jimmy Carter’s approval ratings were just starting to recover from the disastrous Iranian hostage crisis in 1979 when the economy took a downturn, sliding his approval ratings back into the 30s. Ronald Regan’s victory in 1980 was nothing short of a landslide.
Bush’s approval ratings are currently hovering in the 30s, just a few points lower than his father’s were when Bill Clinton unseated him during the 1992 election. At the time, unemployment and poverty had climbed to their highest in nearly ten years.
I’m not suggesting that approval ratings alone will make or break an election. Each of these examples had other contributing factors. Eisenhower’s victory came in the midst of the Cold War, and Bush’s 1990 tax hike left room for Clinton to secure a victory. Regardless of the issues, when the president’s approval ratings sink below 50 percent the party is in trouble. As a candidate, even if you do everything right (which no candidate has in this, or probably any, election) you’ll still face an uphill battle through a blizzard.
Of course Republicans should not be deterred from voting tomorrow, our votes still count. We also need to be realistic about our expectations for the election’s outcome: a McCain victory is unlikely.
So for now, tuck those Cubans back in their box and leave your Tattinger on ice. The political climate could look much more favorable for conservatives once Obama’s had four years in the White House.
Wednesday, October 8, 2008
McCain's resurgence policy beats Obamanomics
Economic policy will make or break this election…and the next presidency.
It’s clear that our next president will have to do some heavy lifting to pull the U.S. economy back on its feet, and the steps to recovery have been hotly contested. During last night’s presidential debate, the candidates addressed our struggling economy and their plans for remedy.
Obama spewed more standard democratic slogans, insisting that tax breaks for middle-class Americans will help us avoid economic ruin.
Really? How will a tax cut help someone who is already upside down on their mortgage and in immediate danger of losing their home? Are we talking like tens of thousands of dollars in tax cuts for every person? Can we get that money like next month? That’s how fast Americans are foreclosing. For some, it has already happened. How will a tax cut help those who have already lost their homes?
One of the problems snowballing this crisis is that many homeowners are upside-down on their mortgages (sometimes called “negative equity”). Even if they could sell their house at fair market value they’d still owe more money than they’d receive on the sale.
McCain highlighted a plan to help families restructure mortgages. His plan isn’t perfect (and I’m still not a fan of his vote on the $700 billion “rescue” plan). I don’t think forgiving debts, which this plan would in some cases, is the best solution. It’s giving a man a fish versus teaching him to fish. Struggling homeowners would be better served by a plan that allows them to opt for interest-only payments for a few years, at least until they have some positive equity in their homes again. That would provide much needed relief without giving the false impression that we can continue to dig ourselves into financial holes and expect the federal government to pull us out.
I would also alter McCain’s plan to include homeowners with zero down payment mortgages, which his current plan expressly excludes. Was it stupid to buy a house without any down payment at all? Yes. If you can’t afford a down payment you should be renting. But this stipulation would exclude from McCain’s resurgence plan a significant number of families who urgently need help restructuring their mortgages. Without help they will surely lose their homes, regardless of how swiftly Wall Street is recovering.
P.S. So good to see Rach writing again. I missed your acerbic wit and pointed observations.
It’s clear that our next president will have to do some heavy lifting to pull the U.S. economy back on its feet, and the steps to recovery have been hotly contested. During last night’s presidential debate, the candidates addressed our struggling economy and their plans for remedy.
Obama spewed more standard democratic slogans, insisting that tax breaks for middle-class Americans will help us avoid economic ruin.
Really? How will a tax cut help someone who is already upside down on their mortgage and in immediate danger of losing their home? Are we talking like tens of thousands of dollars in tax cuts for every person? Can we get that money like next month? That’s how fast Americans are foreclosing. For some, it has already happened. How will a tax cut help those who have already lost their homes?
One of the problems snowballing this crisis is that many homeowners are upside-down on their mortgages (sometimes called “negative equity”). Even if they could sell their house at fair market value they’d still owe more money than they’d receive on the sale.
McCain highlighted a plan to help families restructure mortgages. His plan isn’t perfect (and I’m still not a fan of his vote on the $700 billion “rescue” plan). I don’t think forgiving debts, which this plan would in some cases, is the best solution. It’s giving a man a fish versus teaching him to fish. Struggling homeowners would be better served by a plan that allows them to opt for interest-only payments for a few years, at least until they have some positive equity in their homes again. That would provide much needed relief without giving the false impression that we can continue to dig ourselves into financial holes and expect the federal government to pull us out.
I would also alter McCain’s plan to include homeowners with zero down payment mortgages, which his current plan expressly excludes. Was it stupid to buy a house without any down payment at all? Yes. If you can’t afford a down payment you should be renting. But this stipulation would exclude from McCain’s resurgence plan a significant number of families who urgently need help restructuring their mortgages. Without help they will surely lose their homes, regardless of how swiftly Wall Street is recovering.
P.S. So good to see Rach writing again. I missed your acerbic wit and pointed observations.
Tuesday, October 7, 2008
Two down, one to go
I realize it's been awhile since my byline crossed the blog ... nothing like politics to bring me back!
Tonight's second presidential debate was a tad boring and predictable. McCain came off as snarky. Obama came off as a bit more nuanced. Tom Brokaw somehow wins the bitter award.
Since the candidates rarely say anything new or different in these debates, half the fun has been watching the moderators. Jim Lehrer was like a stern father -- "look at each other when you talk!" Gwen Ifill was ... well all I can picture is the Queen Latifah version. Tom Brokaw was more sassy tonight than I've seen him, and the whole debate setup seemed a little wonky and loose (despite Brokaw's best efforts).
And some brief thoughts on what the candidates said tonight...
-Both have time sticking to time restrictions. Wow.
-Yes, everyone is talking about how McCain called Obama "that one." It was condescending which, sadly, is not entirely unusual for the Mac.
-I thought it was funny that McCain sought to buy himself time with the Treasury Chief question. He first replied "not you, Tom" and paused for nonexistent laughter. Then all he could come up with was the CEO of a company that laid of 10 percent of its workforce this week.
-Along with most of his other classes, McCain must have failed math at the Naval Academy. He keeps talking about adding things that aren't possible. For example, he wants to go buy every failing mortgage in the country. Uh, how are you gonna pay for that, pal? He refuses to raise taxes and at the rate we're going, they're going to have to invent a new number to describe the national debt. (Freezing all programs is not an option -- some people in this country, those who don't have seven houses, actually depend on those programs.) Also a mathematical problem, the troops -- how are you going to get the increases you want in Afghanistan while maintaining surge numbers in Iraq? The numbers aren't there so we either need a random enlistment rush, a draft or troops out of Iraq.
-Watching CNN's undecided voter tracking was actually really interesting. The approval numbers dropped below the middle line every time the candidates went negative. This doesn't bode well for McCain, since he spent more time than Obama doing smearing.
-McCain made a comment about wanting to chair a commission with "smart people." My friends and I have been debating the importance of smarts recently -- to be precise, since Sarah Palin came on the scene. Some conservative friends maintain that having "the smarts" is not entirely necessary to win hearts and votes. I thought it was funny that McCain puts trust in intelligent people to sort through tough situations...
-If McCain says "my friends" one more time I'm going to hurl. Can we at least get him a thesaurus? In debate three I want to hear "my acquaintances" or maybe "my homies."
Despite all this, the next 28 days will be filled with assertions that Obama is a gay Muslim terrorist. Yay democracy!
Tonight's second presidential debate was a tad boring and predictable. McCain came off as snarky. Obama came off as a bit more nuanced. Tom Brokaw somehow wins the bitter award.
Since the candidates rarely say anything new or different in these debates, half the fun has been watching the moderators. Jim Lehrer was like a stern father -- "look at each other when you talk!" Gwen Ifill was ... well all I can picture is the Queen Latifah version. Tom Brokaw was more sassy tonight than I've seen him, and the whole debate setup seemed a little wonky and loose (despite Brokaw's best efforts).
And some brief thoughts on what the candidates said tonight...
-Both have time sticking to time restrictions. Wow.
-Yes, everyone is talking about how McCain called Obama "that one." It was condescending which, sadly, is not entirely unusual for the Mac.
-I thought it was funny that McCain sought to buy himself time with the Treasury Chief question. He first replied "not you, Tom" and paused for nonexistent laughter. Then all he could come up with was the CEO of a company that laid of 10 percent of its workforce this week.
-Along with most of his other classes, McCain must have failed math at the Naval Academy. He keeps talking about adding things that aren't possible. For example, he wants to go buy every failing mortgage in the country. Uh, how are you gonna pay for that, pal? He refuses to raise taxes and at the rate we're going, they're going to have to invent a new number to describe the national debt. (Freezing all programs is not an option -- some people in this country, those who don't have seven houses, actually depend on those programs.) Also a mathematical problem, the troops -- how are you going to get the increases you want in Afghanistan while maintaining surge numbers in Iraq? The numbers aren't there so we either need a random enlistment rush, a draft or troops out of Iraq.
-Watching CNN's undecided voter tracking was actually really interesting. The approval numbers dropped below the middle line every time the candidates went negative. This doesn't bode well for McCain, since he spent more time than Obama doing smearing.
-McCain made a comment about wanting to chair a commission with "smart people." My friends and I have been debating the importance of smarts recently -- to be precise, since Sarah Palin came on the scene. Some conservative friends maintain that having "the smarts" is not entirely necessary to win hearts and votes. I thought it was funny that McCain puts trust in intelligent people to sort through tough situations...
-If McCain says "my friends" one more time I'm going to hurl. Can we at least get him a thesaurus? In debate three I want to hear "my acquaintances" or maybe "my homies."
Despite all this, the next 28 days will be filled with assertions that Obama is a gay Muslim terrorist. Yay democracy!
Monday, October 6, 2008
Why the bailout is bad for business
Bailing out failing companies without restoring investor confidence is useless. Deteriorating financial institutions hurt our economy, but the resulting decline in investor confidence is the real crisis.
It’s important to remember that these businesses failed for good reasons. They took on reckless investments, sometimes at the urging of the federal government who now wants to hand over $700 billion to revive our tanking economy.
If officials really want to stop the bleeding they’ll halt earmark-laden legislation and start working with financial markets, encouraging more deals like the WaMu and Wachovia buyouts. In the days following the crash, the federal government has overestimated it’s own political clout. Consumers won’t invest their hard-earned dollars simply because you tell them it’s safe. At this point, confidence would be better restored with corporate solutions, especially in the U.S. where faith in our government is dwindling.
Over the past week, countless economists and journalists have compared this crisis to the events leading up to the Great Depression. It’s hard to deny the parallels: the three greatest tragedies that tanked our financial system during the 1930s were the credit crisis, irresponsible lending on the part of financial institutions, and the government’s failure to provide aid to struggling families. Our current situation paints a distressingly similar picture. It makes a government rescue seem necessary, if not inevitable.
But don’t underestimate the market. Overzealous intervention could do more harm than good. The market weathers peaks and valleys with remarkable resilience and it will eventually self-correct. We may not all be better off when that happens: homeowners who bit off more mortgage than they could chew could still lose their homes, and fiscally irresponsible companies could still be out of business. But allowing this process of economic natural selection is the best solution.
If we must have government involvement let it be limited to helping the families most affected by this crisis. Let’s come up with payment plans to help middle-class Americans keep their homes.
With the Dow still hovering above 10,000, we’ve yet to see the bottom of this slump. But a $700 billion lifeline won’t stop the recession in its tracks.
You can take that to the bank.
It’s important to remember that these businesses failed for good reasons. They took on reckless investments, sometimes at the urging of the federal government who now wants to hand over $700 billion to revive our tanking economy.
If officials really want to stop the bleeding they’ll halt earmark-laden legislation and start working with financial markets, encouraging more deals like the WaMu and Wachovia buyouts. In the days following the crash, the federal government has overestimated it’s own political clout. Consumers won’t invest their hard-earned dollars simply because you tell them it’s safe. At this point, confidence would be better restored with corporate solutions, especially in the U.S. where faith in our government is dwindling.
Over the past week, countless economists and journalists have compared this crisis to the events leading up to the Great Depression. It’s hard to deny the parallels: the three greatest tragedies that tanked our financial system during the 1930s were the credit crisis, irresponsible lending on the part of financial institutions, and the government’s failure to provide aid to struggling families. Our current situation paints a distressingly similar picture. It makes a government rescue seem necessary, if not inevitable.
But don’t underestimate the market. Overzealous intervention could do more harm than good. The market weathers peaks and valleys with remarkable resilience and it will eventually self-correct. We may not all be better off when that happens: homeowners who bit off more mortgage than they could chew could still lose their homes, and fiscally irresponsible companies could still be out of business. But allowing this process of economic natural selection is the best solution.
If we must have government involvement let it be limited to helping the families most affected by this crisis. Let’s come up with payment plans to help middle-class Americans keep their homes.
With the Dow still hovering above 10,000, we’ve yet to see the bottom of this slump. But a $700 billion lifeline won’t stop the recession in its tracks.
You can take that to the bank.
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